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Statement of Charges Allowed by the Illinois Supreme Court

and Imposing Discipline on Consent

Allowed May 18, 2017

IN THE SUPREME COURT OF ILLINOIS

In the Matter of:

JOHN LAWRENCE STEELE,, Supreme Court No. M.R.28663

Attorney-Respondent, Commission No. 2015PR00068

No. 6292158.

STATEMENT OF CHARGES
PURSUANT TO SUPREME COURT RULE 762(a)

Jerome Larkin, Administrator of the Attorney Registration and Disciplinary Commission


("ARDC"), by his attorneys, Wendy J. Muchman and Chi (Michael) Zhang, pursuant to
Supreme Court Rule 762(a), states that on the date John Lawrence Steele (hereinafter
"Movant") filed a motion requesting that his name be stricken from the Roll of Attorneys, a
complaint was pending against Movant before the Hearing Board of the Commission,
charging Movant with engaging in a multi-jurisdictional copyright litigation scheme in which
Movant and others abused the judicial system to exact settlements from tens of thousands of
internet users who allegedly infringed on the copyrights of the owners of pornographic
movies, including movies that Movant himself produced and distributed. Under the guise of
fighting against piracy, Movant and his associates misled state and federal courts across the
country into giving them the power to subpoena internet service providers ("ISPs") so that
they could identify individuals from whom they garnered quick settlements based on the threat
of substantially larger statutory damages and unwanted publicity. On December 16, 2016, a
grand jury in Minnesota returned an 18-count federal indictment against Movant1 for engaging
in conspiracy to commit mail fraud and wire fraud; engaging in mail fraud and wire fraud; and
engaging in conspiracy to commit money laundering. The allegations in the indictment were
based, in large part, on the conduct described in this statement of charges. On March 6, 2017,
Movant pled guilty to 2 of the 18 counts in the federal indictment. Had Movant's conduct been
the subject of a hearing, the Administrator would have introduced the evidence described
below, and that evidence would have clearly and convincingly established the misconduct
indicated below:

1
See United States of America v. Paul R. Hansmeier and John L. Steele, 16 CR 334 (D. Minn.)
I. FACTUAL BASIS

Movant's admissions, bank records, court orders and records, and the testimony of various
individuals either formerly affiliated with Movant or defendants against whom Movant filed
lawsuits, would establish the following facts:

1. In or about 2010, Movant, along with his law school friend and now-suspended Minnesota
attorney Paul R. Hansmeier ("Hansmeier")2, created the law firms Steele Hansmeier, PLLC
("Steele Hansmeier"), operating out of Chicago, and Alpha Law Firm ("Alpha Law"),
operating out of Minneapolis. These two firms concentrated their practice on filing copyright
infringement matters on behalf of entities that purportedly owned copyrights to pornographic
movies. Movant had an interest in at least some of those entities.

2. Since 2010, Movant also created two successor law firms to Steele Hansmeier: Prenda Law,
Inc. ("Prenda"), and Anti-Piracy Law Group. Both law firms occupied the same office in
Chicago as that of Steele Hansmeier, and engaged in the same type of copyright litigation.
While Prenda and Anti-Piracy Law Group were nominally managed by now-deceased Illinois
attorney Paul A. Duffy, Movant and Hansmeier retained de facto control overseeing the firms'
operations and obtaining financial rewards of at least $6,000,000.

3. Between 2011 and 2014, Movant, through Steele Hansmeier and its various successor law
firms, and using various local counsel acting at Movant's direction, sent settlement letters to
thousands of individuals residing in California, Illinois, Minnesota and Florida, who had,
allegedly, downloaded pornographic movies from file-sharing websites. Movant had overseen
and directed the filing of lawsuits against "John Doe" defendants, initially identified only by
their computers' Internet Protocol ("IP") addresses. Movant then sought discovery of the "John
Doe" defendants' actual identities by obtaining permission from the courts to subpoena
internet service providers ("ISPs") for subscriber information associated with those IP
addresses allegedly used to download the movies. In making those requests, Movant did not
disclose his own involvement in the plaintiff entities. After obtaining the necessary
information, Movant, and others at his direction, caused letters to be sent to defendants that
threatened statutory damages of up to $150,000, and offered them the opportunity to settle for
approximately $4,000 to avoid the embarrassment of being publicly named in a lawsuit
relating to their allegedly illegal downloading of pornography. To give the appearance of
legitimacy, Movant and Hansmeier recruited ruse defendants and created shell corporations,
both within the United States (Guava, LLC) and offshore (Ingenuity 13, LLC and AF
Holdings, LLC), and identified those entities in filings as "clients" in their lawsuits.

4. The sheer volume of boilerplate lawsuits Movant filed across several jurisdictions over the
span of three years, combined with thousands of identical letters sent to internet subscribers,
were eventually met with resistance from both ISPs and defendants. The courts also took
notice of Movant's tactics, which resulted in several sanctions and punitive damages being

2
On September 12, 2016, the Minnesota Supreme Court indefinitely suspended Hansmeier from the practice of law,
with no right to petition for reinstatement for four years, in a disciplinary action involving allegations similar to
those set forth in this statement of charges. See In re Petition for Disciplinary Action against Paul Robert
Hansmeier, a Minnesota Attorney, A15-1855.
imposed on Movant and the various law firms with which he was affiliated. These sanctions
are detailed below:

Ingenuity 13 v. John Doe, 12-CV-8333

5. On May 6, 2013, in a case filed in the Central District of California, the Honorable Otis D.
Wright entered an order issuing sanctions and ordering Movant to pay double the defendant's
attorneys' fees and costs, in the amount of $81,319.72. The punitive multiplier was justified by
what the court deemed to be Movant's "brazen misconduct and relentless fraud" perpetrated on
the court, stemming from Movant's actions in misleading the court into granting early
discovery requests, and creating the aforementioned offshore entities, including Ingenuity 13
and AF Holdings, to shield the principals (Movant, Hansmeier, and Duffy) from potential
liability by obscuring their own interest in those entities, and to give their lawsuits an
appearance of legitimacy. In addition to engaging in actions designed to coerce settlement,
Movant also used the identity of his former housekeeper, Alan Cooper ("Cooper"), without
Cooper's knowledge or permission, and listed Cooper as an officer of plaintiff AF Holdings in
pleadings filed in various lawsuits. On appeal, the United States Court of Appeals for the
Ninth Circuit affirmed the sanction, and held that Judge Wright had not abused his discretion
in finding Movant, Hansmeier, and Duffy to be the parties responsible for the abusive
litigation.

Alan Cooper v. John Lawrence Steele, Prenda Law, LLC, AF Holdings and Ingenuity 13, 27-
CV-13-3463

6. In February 2013, Movant's former housekeeper, Alan Cooper, brought suit in the District
Court of Hennepin County, Minnesota, against Movant, Prenda, and their associate entities,
alleging that Movant engaged in identity theft by using Cooper's name in connection with AF
Holdings' and Ingenuity 13's purchase of copyrights to pornographic movies. Cooper had
entered into a written rental agreement with Movant to reside in the guest house on the
property as part of the caretaking arrangement. Movant later used Cooper's signatures from
that rental agreement, without Cooper's knowledge or authorization, in court filings, falsely
identifying Cooper as an officer or director of AF Holdings and as manager of Ingenuity 13.
Movant settled Cooper's claims against him for $35,000 in April 2015. The court subsequently
entered a judgment against the Prenda law firm in amounts of $5,000 as damages for
humiliation and $250,000 in punitive damages in July 2015.

Lightspeed Media Corp v. Smith, 12-CV-899

7. In 2012, Lightspeed Media Corporation ("Lightspeed"), an adult entertainment enterprise,


represented by Movant, Hansmeier, and Duffy, filed suit in the Circuit Court of St. Clair
County, Illinois, against "John Doe" defendant, alleging that the defendant hacked computer
systems belonging to Lightspeed. Movant, Hansmeier and Duffy issued subpoenas to ISPs
seeking personally identifiable information of approximately 6,600 individuals who Movant
alleged were "co-conspirators" with "John Doe". On June 27, 2012, this Court entered a
supervisory order directing the trial court to quash Lightspeed's subpoenas. Following that
supervisory order, Movant and other Prenda principals substituted "John Doe" with Anthony
Smith ("Smith"), a nursing student in Collinsville, and amended the complaint to list internet
service providers AT&T and Comcast as co-conspirators. Movant's amended complaint
alleged violations under a federal statute, the Computer Fraud and Abuse Act, and the St. Clair
County case was removed to the federal district court for the Southern District of Illinois and
assigned to the Honorable David R. Herndon.

8. Following Judge Herndon's denial of Lightspeed's emergency motion requesting the ISPs to
produce the identities of the alleged "co-conspirators", Movant and the Prenda principals
voluntarily dismissed all claims in the litigation. Movant filed the Lightspeed lawsuit for the
express purpose of discovering the identities of individuals from whom the Prenda principals
could exact settlements, and dismissed the case once it came under scrutiny. For filing a
baseless and frivolous claim against Smith, Judge Herndon sanctioned Movant, Hansmeier,
and Duffy and ordered them to pay defendants' attorneys' fees and expenses totaling
$261,025.11.

9. On December 12, 2013, Movant caused a notice of appeal to be filed with the United States
Court of Appeals for the Seventh Circuit, appealing the district court's imposition of attorneys'
fees and sanctions in the Smith case. During the pendency of his appeal, Movant took steps to
hide his assets, all the while representing to the court, during a show-cause hearing, that he
was unable to pay Judge Herndon's sanctions. The district court held Movant and Duffy in
contempt and imposed additional sanctions in the amount of 10% of the original sanction, to
be apportioned equally between Movant and Duffy, for their willful violations of the court's
earlier sanction order by refusing to pay Smith's and the ISPs' fees and costs. Movant and
Duffy appealed Judge Herndon's finding, which was consolidated with their earlier appeal.

10. After the Seventh Circuit affirmed both sanctions, Movant and Duffy claimed insolvency
and utilized various obstructive tactics, including attempting to mislead bank officials at
JPMorgan Chase by sending them a motion to quash Smith's subpoenas after that motion had
already been denied by the district court, in an effort to prevent Chase from producing
Movant's financial records. Movant's attempts to circumvent Smith's efforts in discovery
prolonged the discovery process, and led the district court to impose additional sanctions
against Movant and Duffy in the amount of $94,343.51 for Smith's discovery costs (hereafter,
"Discovery Sanction"), and $65,623.00 for misleading the court by falsely claiming
insolvency (hereafter, "Contempt Sanction"). Following these sanctions, Movant once again
pursued an appeal. This time, however, rather than risking additional sanctions by claiming
insolvency, Movant made two wire transfers to the court in amounts of $65,000 and
$47,171.75 (his half of the Discovery Sanction).

11. While their second appeal was pending, Movant and Hansmeier emptied accounts they
controlled in sums vastly in excess of the sanctions they owed. The Seventh Circuit later
affirmed the Discovery Sanction, but vacated the Contempt Sanction and remanded the case
for further proceedings. On remand, Judge Herdon noted that "it was evident that [Movant], as
the last man standing, felt aggrieved at the possibility of being held responsible for all of
Smith's costs."3 However, finding that "the discovery costs Smith incurred [were] a direct
result of the overlapping wrongs committed by Steele, Hansmeier, and Duffy", Judge Herndon

3
At the time the Seventh Circuit issued its ruling, Paul Hansmeier had filed for bankruptcy in Minnesota and Paul
Duffy was deceased.
elected to impose civil contempt against Movant in the amount of $47,171.76 (Smith's
unrecovered portion of his discovery costs), to be drawn from Movant's earlier transfer of
$65,000 to the court.

Guava v. Comcast Cable Communications, LLC, 12 MR 417

12. Movant and Duffy filed a petition in the Circuit Court of St. Clair County on behalf of
Guava, LLC ("Guava"), a U.S.-based entity of controlled by Movant and Hansmeier, seeking
to discover from Comcast Cable Communications, LLC ("Comcast'), prior to filing suit, the
identities of approximately 300 "hackers" who had allegedly attempted to obtain access to
pornographic material. The petition did not include sufficient facts to support a cause of action
against the persons it sought to identify. Consistent with the other lawsuits filed across the
country, Movant's objective in filing this petition was not to state a cause of action against the
Comcast subscribers, but to obtain information about individuals from whom they could
attempt to exact settlements for the purportedly improper downloads of pornographic movies.

Prenda Law, Inc. v. Paul Godfread, Alan Cooper, and John Does 1-10, 13-CV-4341

13. In 2013, the Prenda law firm, through Paul Duffy, caused a complaint to be filed in the
Circuit Court of St. Clair County against Alan Cooper, Cooper's attorney Paul Godfread, and
certain "John Doe" defendants. The case was docketed as Prenda v. Godfread, et al. At the
same time, Duffy also filed another case in the Circuit Court of St. Clair County, against the
same defendants, in which he himself was the named plaintiff. That case was docketed as
Duffy v. Godfread, et al. Both cases contained claims that the defendants had engaged in libel,
defamation, and tortious interference with contractual relationships.

14. At or about that same time, Movant filed a similar case on his own behalf against the same
defendants in the Circuit Court for the 11th Judicial District of Florida. Movant's case was
docketed as Steele v. Godfread et al., and it contained claims that the defendants had engaged
in libel, defamation, and tortious interference with contractual relationships. Movant
voluntarily dismissed Steele v. Godfread, et al., 18 days after he filed it. Movant was aware
that Prenda v. Godfread, et al. and Duffy v. Godfread, et al. remained pending.

15. Later in 2013, Prenda v. Godfread, et al. and Duffy v. Godfread, et al. were removed to
the Southern District of Illinois. Prenda, through Paul Duffy, filed a motion to remand the
cases to the Circuit Court of St. Clair County, which Judge David Herndon of the Southern
District of Illinois denied. The cases were then transferred to the Northern District of Illinois.
Thereafter, Prenda, through Paul Duffy, again sought the remand of the cases to state court,
advancing the same arguments that Judge Herndon had already rejected. In so doing, Prenda
intentionally mischaracterized Judge Herndon's prior ruling.

16. At no time during the foregoing proceedings did Movant formally withdraw from
participating in Prenda's business operations or formally terminate his association with Prenda
and Duffy.

17. On June 12, 2014, the Honorable John W. Darrah entered an order in Prenda v. Godfread,
et al. imposing sanctions against Prenda in the amount of $11,758.20 for filing a frivolous
pleading and misrepresenting Judge Herndon's prior ruling concerning the remand of the cases
to state court. As of the date the instant statement of charges was filed, the sanctions had not
been paid.

CONCLUSIONS OF MISCONDUCT

18. By reason of the conduct outlined above, Movant has engaged in the following
misconduct:

a. bringing a proceeding without a basis in law and fact for doing so that is
not frivolous, by conduct including filing lawsuits without supporting
facts, under the names of entities Movant created as part of his litigation
scheme to exact settlements; misusing the identity of Alan Cooper by
holding Cooper out to be a corporate representative; by using third-
party discovery to improperly obtain information on individuals from
whom settlements could be exacted; and by attempting to transfer
Prenda's suit against Cooper to the Northern District without legal basis,
in violation of Rule 3.1 of the Illinois Rules of Professional Conduct
(2010);
b. making a false statement of fact to a tribunal, by conduct including
fraudulently claiming an inability to pay the sanction awards imposed
against him in the Smith case, in violation of Rule 3.3(a)(1) of the
Illinois Rules of Professional Conduct (2010);
c. knowingly disobeying an obligation under the rules of a tribunal by
conduct including failing to abide by Judge Wright's order quashing
discovery in Ingenuity 13 v. John Doe; and failing to comply with the
sanction order entered by Judge Darrah, in violation of Rule 3.4(c) of
the Illinois Rules of Professional Conduct (2010);
d. in a pretrial procedure making frivolous discovery requests, by conduct
including filing the motions for early discovery on behalf of his shell
corporations in violation of Rule 3.4(d) of the Illinois Rules of
Professional Conduct (2010);
e. in representing a client, using means that had no substantial purpose
other than to embarrass or burden a third person, or using methods of
obtaining evidence that violates the legal rights of such a person, by
conduct including sending settlement letters, without disclosing his own
interest in the case, and threatening adverse publicity against the
recipients, in violation of Rule 4.4 of the Illinois Rules of Professional
Conduct (2010);

f. conduct involving dishonesty, fraud, deceit, or misrepresentation, by


conduct including filing lawsuits without supporting facts, under the
names of entities like Ingenuity 13 and AF Holdings, which were
created by Movant for purposes of exacting settlements; misusing the
identity of Alan Cooper and holding Cooper out in various court
pleadings as a principal of Ingenuity 13 and AF holdings; using third-
party discovery to improperly obtain from ISPs the identities of
individuals from whom settlements could be exacted; making
misrepresentation to Judge Herndon during the show-cause hearing
about his ability to pay sanctions; and obstructing discovering and
misleading the court in an effort to avoid paying sanctions imposed
against him in the Smith case, in violation of Rule 8.4(c) of the Illinois
Rules of Professional Conduct (2010); and
g. conduct that is prejudicial to the administration of justice, by conduct
including filing lawsuits without supporting facts and under the names
of entities he created for the purposes of exacting settlements; by falsely
stating that Alan Cooper was a principal of AF Holdings and Ingenuity
13 to conceal Movant's own interest in those entities; by filing a petition
seeking discovery prior to suit for the improper purpose of using that
discovery to obtain from ISPs the identities of individuals from whom
settlements could be exacted; failing to comply with the sanction orders
entered by Judge Darrah in Prenda Law Inc. v. Paul Godfread et.al.;
and wasting the court's time in resolving sanction issues in Lightspeed
Media Corp. v. Smith, in violation of Rule 8.4(d) of the Illinois Rules of
Professional Conduct (2010).

Respectfully submitted,

Jerome Larkin, Administrator


Attorney Registration and
Disciplinary Commission

By: /s/Chi (Michael) Zhang


Chi (Michael) Zhang

Chi (Michael) Zhang


Wendy J. Muchman
Counsels for the Administrator
130 East Randolph Drive, Suite 1500
Chicago, Illinois 60601
Telephone: (312) 565-2600
Email: mzhang@iardc.org;
wmuchman@iardc.org